Time is now for rainy day saving

WITH Oklahoma’s economy roaring out of the recession that started in 2014 and with record tax collections rolling in, lawmakers would do well to focus on putting more aside in the state’s “rainy day” fund for the next downturn.

As things stand, Oklahoma government is ill-prepared for the future, and tax collections will undoubtedly fall again at some point.

In a recent report, The Wall Street Journal noted, “Measured as a share of spending, 21 states had smaller rainy day funds in 2017 than they did in 2008, according to data from the National Association of State Budget Officers compiled by the Tax Policy Center.”

Oklahoma was singled out as among the worst states. The Journal said Oklahoma’s Rainy Day Fund held enough money to cover 9.3 percent of expenditures in 2008, but could cover just 1.6 percent of expenditures by the 2017 budget year.

The situation has improved somewhat since then. In May, officials with the Office of Management and Enterprise Services announced Oklahoma state tax collections were on pace to provide a Rainy Day Fund deposit of more than $300 million.

While that’s an impressive amount, it would cover only a fraction of the more than $1 billion single-year shortfall ultimately experienced after oil prices fell in 2014. Thus, lawmakers would do well to devote more money to the fund instead of automatically increasing government spending. Spending, coupled with a relatively small Rainy Day Fund, caused much of the fiscal dysfunction of the past few years.

Rather than increase savings, however, some political leaders have decried the fact that they cannot raid Oklahoma’s Rainy Day Fund outside true financial shortfalls. (Despite political rhetoric to the contrary, lawmakers faced no shortfall at the start of the 2018 session and instead had hundreds of millions in growth revenue available.)

Such arguments are short-sighted. The problem in Oklahoma is not that lawmakers are too restrained in using rainy day money. The problem is they are instead too reluctant to make savings deposits aside from those strictly mandated by law. That needs to change for the state’s future stability.

North Dakota is often cited as a model for Oklahoma to follow, because that state used its pre-2015 surge in energy tax revenue to boost school funding. Yet the Journal notes North Dakota went from having enough money in its rainy day fund to cover 16.6 percent of expenditures in 2008 to having enough for just 1.5 percent of expenditures by 2017.

A better example may come from Texas, which Governing Magazine reports had enough money set aside to cover 19.3 percent of expenditures in 2017. There are several reasons the energy recession didn’t impact Texas as severely as Oklahoma, but prudent savings surely played a role.

We have argued before that lawmakers should raise the cap on the Rainy Day Fund, which is set too low. That’s still needed. But they must also realize that boom times are an opportunity to increase savings.

A politician’s first instinct is to spend today, plan tomorrow. But this approach has not served Oklahoma well, and continuing with that model only promises greater pain in the future.